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Paxos will stop issuing Binance's BUSD stablecoin following SEC, New York intervention
(Kitco News) -
In the latest salvo from U.S. regulators against crypto firms, stablecoin issuer Paxos Trust will stop issuing the Binance USD coin (BUSD), the third largest stablecoin by market cap, following an order from the New York Department of Financial Services (NYDFS). The news was first reported by the Wall Street Journal on Monday morning, and it has since been confirmed by Paxos and Binance.
The action by the New York regulator came hours after the WSJ reported Sunday evening that Paxos had received a ‘wells notice’ from the Securities and Exchange Commission (SEC), which is used to tell companies that they are the target of an enforcement action. The notice informed Paxos that the SEC considers BUSD to be an unregistered security.
Paxos responded by issuing a statement early Monday morning saying the company plans to “end its relationship with Binance” for BUSD.
“Effective February 21, Paxos will cease issuance of new BUSD tokens as directed by and working in close coordination with the New York Department of Financial Services (NYDFS),” they wrote. Paxos emphasized that all BUSD tokens “have and always will be backed 1:1 with US dollar-denominated reserves,” and that BUSD “will remain fully supported by Paxos and redeemable to onboarded customers through at least February 2024.”
Changpeng Zhao (CZ), the founder and CEO of Binance, took to twitter shortly afterward to reassure customers holding BUSD.
“We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS),” he wrote. “As a result, BUSD market cap will only decrease over time.” He reiterated Paxos’ assertion that they would continue to service BUSD, and that the stablecoin is fully covered by audited reserves.
“On the alleged SEC vs Paxos lawsuit, I have no information about it, other than public news articles,” CZ said. “The lawsuit is between the US SEC & Paxos.”
He also shared a tweet by Australian crypto analyst Miles Deutscher, who failed to understand the SEC’s reasoning in the Paxos decision.
The SEC has labelled BUSD as an “unregistered security”, and is suing its issuer, Paxos.
— Miles Deutscher (@milesdeutscher) February 13, 2023
But how on earth is a STABLECOIN considered a security, when it clearly doesn’t meet the Howey Test criteria.
No one has ever had “the expectation of profit” when buying $BUSD. pic.twitter.com/QXOlDUyvc3
CZ added that if BUSD is ruled a security “it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.” He said he expected users to migrate to other stablecoins over time, and that Binance will “make product adjustments accordingly. eg, move away from using BUSD as the main pair for trading, etc.”
He concluded by saying that due to the “ongoing regulatory uncertainty,” Binance would review other projects that operate under U.S. jurisdiction “to ensure our users are insulated from any undue harm.”
BUSD is the third largest stablecoin on the market with $16 billion in market cap, trailing only Tether’s USDT with $68 billion and Circle’s USDC with $41 billion. BUSD slipped from its U.S. dollar peg after the Paxos news broke, trading as low as 0.9950 against USDT on Binance.
Analysts noted sustained flows from BUSD to USDT with over $12.5 billion in trading volume over the last 24 hours representing over 75% of the supply in circulation, compared to $4.5 billion for USDC and $39 billion for USDT. BUSD represents 35% of the trading volume on the Binance platform.
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